The European regulation supervising credit rating agencies enters into force
Monday 07 December 2009 Commission EuropéenneThis directly applicable Regulation puts in place a common
regulatory regime for the issuance of credit ratings thus
responding to the need for restoring market confidence and
increasing investor protection.
As a rule, all credit rating agencies that would like their credit ratings to be used in the EU will need to apply for registration. The applications will be submitted to the Committee of European Securities Regulators (CESR) and decided upon in a consensual manner by the relevant securities regulators grouped in a college. The college of regulators will also be involved in the day-to-day supervision of credit rating agencies.
Specific, albeit sufficiently exacting, treatment is envisaged and may be extended, on a case-by-case basis, to credit rating agencies operating exclusively from non-EU jurisdictions provided that their countries of origin have established regulatory and supervisory frameworks as stringent as the one now put in place in the EU.
Registered credit rating agencies will have to comply with rigorous rules to make sure (i) that ratings are not affected by conflicts of interest, (ii) that credit rating agencies remain vigilant on the quality of the rating methodology and the ratings, and (iii) that credit rating agencies act in a transparent manner. The Regulation also includes an effective surveillance regime whereby regulators will supervise credit rating agencies.
New rules include the following:
- Credit rating agencies may not provide advisory services.
- They will not be allowed to rate financial instruments if they do not have sufficient quality information to base their ratings on.
- They must disclose the models, methodologies and key assumptions on which they base their ratings.
- They must differentiate the ratings of more complex products by adding a specific symbol.
- They will be obliged to publish an annual transparency report.
- They will have to create an internal function to review the quality of their ratings.
- They should have at least two independent directors on their boards whose remuneration cannot depend on the business performance of the rating agency. They will be appointed for a single term of office which can be no longer than five years. They can only be dismissed in case of professional misconduct. At least one of them should be an expert in securitisation and structured finance.
The new rules are largely based on the standards set in the International Organisation of Securities Commissions (IOSCO) code.
The Regulation imposes rules which have a legally binding character.
European Regulation No 1060/2009 (.pdf)
As a rule, all credit rating agencies that would like their credit ratings to be used in the EU will need to apply for registration. The applications will be submitted to the Committee of European Securities Regulators (CESR) and decided upon in a consensual manner by the relevant securities regulators grouped in a college. The college of regulators will also be involved in the day-to-day supervision of credit rating agencies.
Specific, albeit sufficiently exacting, treatment is envisaged and may be extended, on a case-by-case basis, to credit rating agencies operating exclusively from non-EU jurisdictions provided that their countries of origin have established regulatory and supervisory frameworks as stringent as the one now put in place in the EU.
Registered credit rating agencies will have to comply with rigorous rules to make sure (i) that ratings are not affected by conflicts of interest, (ii) that credit rating agencies remain vigilant on the quality of the rating methodology and the ratings, and (iii) that credit rating agencies act in a transparent manner. The Regulation also includes an effective surveillance regime whereby regulators will supervise credit rating agencies.
New rules include the following:
- Credit rating agencies may not provide advisory services.
- They will not be allowed to rate financial instruments if they do not have sufficient quality information to base their ratings on.
- They must disclose the models, methodologies and key assumptions on which they base their ratings.
- They must differentiate the ratings of more complex products by adding a specific symbol.
- They will be obliged to publish an annual transparency report.
- They will have to create an internal function to review the quality of their ratings.
- They should have at least two independent directors on their boards whose remuneration cannot depend on the business performance of the rating agency. They will be appointed for a single term of office which can be no longer than five years. They can only be dismissed in case of professional misconduct. At least one of them should be an expert in securitisation and structured finance.
The new rules are largely based on the standards set in the International Organisation of Securities Commissions (IOSCO) code.
The Regulation imposes rules which have a legally binding character.
European Regulation No 1060/2009 (.pdf)